Healthcare is arguably the most regulated industry in the stock market. Before a company is allowed to market a drug to the public, it has to pay for expensive clinical trials that prove a drug is both safe and effective. So getting an approval from the Food and Drug Administration (FDA) is a very big deal. Biotech stocks will sometimes skyrocket on this good news. Three Fool.com contributors believe these three healthcare companies are on the verge of a happy day.
Novavax (NVAX -0.95%) has a vaccine for COVID-19 with fantastic phase 3 data, and the company is waiting to hear about its Emergency Use Authorization (EUA) from U.S. regulators. Axsome Therapeutics (AXSM -2.61%) has two FDA filings in the hopper, and hopes to have both drugs approved this year. And Novocure (NVCR 2.36%) is close to the finish line in submitting data for using tumor-treating fields to stop lung cancer. Here's why these investors are bullish on these three stocks in 2022.
Over $4 billion in revenue in 2022
Taylor Carmichael (Novavax): Novavax is a real battleground stock, and has been a wild ride for investors over the last couple of years. The biotech shocked the market when its stock soared from $4 a share all the way up to $330 a share in a little over a year. The euphoria hit its high right after Novavax reported amazing phase 3 data for its COVID-19 vaccine -- 90% efficacy overall, and 100% effective against moderate and severe disease.
Then the stock was hammered as manufacturing delays kept the company from getting its drug on the market in 2021. Now the negativity has been feeding on itself, and the stock has continued its downward plunge in 2022, despite all the good news the company has started to receive. Novavax's vaccine has been authorized by the World Health Organization (WHO) and the European Union (EU). Both India and Indonesia have authorized the vaccine, not to mention the U.K., Japan, France, Canada, and South Korea.
Image source: Getty Images.
All this positive news from around the world suggests Novavax will soon receive a green light from the FDA as well. Analysts say the company will make at least $4 billion in 2022, and estimates run as high as $5 billion. Add in the company's $1.5 billion in cash and the stock seems way undervalued with its $3.7 billion in market cap.
A biotech with two potential drug approvals
George Budwell (Axsome Therapeutics): Axsome Therapeutics is waiting on word from the FDA about two pending New Drug Applications (NDAs). First, the biotech's major depression drug candidate, AXS-05, ought to get a "yea" or "nay" from the agency fairly soon. AXS-05's regulatory decision has been on hold ever since the FDA notified the company that it had identified two deficiencies in the drug's regulatory filing late last year.
However, a recent Securities and Exchange Commission (SEC) filing by Axsome revealed the company has officially agreed to the FDA's postmarketing requirements for AXS-05. As there is no logical reason for a postmarketing program to be hashed out unless an approval was imminent, it seems safe to say that AXS-05 ought to get a green light fairly soon. Axsome, for its part, said it expects action on this long-delayed NDA by the end of the second quarter.
Axsome is also on track to get a regulatory decision for its migraine drug candidate, AXS-07, before the end of this month. Initially, the FDA informed the company that it may not be able to complete the necessary inspections of the drug's manufacturing site before AXS-07's Prescription Drug User Fee Action (PDUFA) date of April 30.
However, this overhang is reportedly no longer in play. Axsome announced on Feb. 7 that the FDA had notified the company that it "does not anticipate any issues with completing this facility inspection prior to the AXS-07 PDUFA date." So it appears that AXS-07's regulatory decision should be a done deal within the month.
Expansion into an $11 billion market seems inevitable
Patrick Bafuma (Novocure): There are few approvals that can immediately impact a large patient population like Novocure's Optune for non-small cell lung cancer (NSCLC). Already approved for glioblastoma, the company's tumor-treating field technology, Optune, is a wearable device that disrupts cancer cell division and growth. And there is good reason to believe FDA approval for this indication is highly likely, if not in late 2022, then in early 2023.
In fact, it was just over a year ago when both patients and Novocure received great news. An independent data monitoring committee determined that its phase 3 Lunar trial for stage 4 NSCLC (after failure with platinum-based therapy) could proceed with a reduced trial size. During a scheduled interim analysis, it was believed that continuing the trial was likely unnecessary, and withholding Optune was possibly unethical. This doesn't happen often and is usually a sign of an overwhelmingly positive trial. Final Lunar data is expected later this year, and this prior announcement makes me believe great news is coming. And if that is the case, FDA approval is practically inevitable.
Yet, a year after this significant announcement, the stock is down over 50%. The only thing that has changed with the business is that NSCLC, its next big market, is much closer to the FDA finish line than it was at the start of 2021. The tumor-treating fields company believes there are 46,000 NSCLC patients annually in the U.S. alone who could benefit from Optune. And at a list price of $21,000 a month for the treatment, that's over an $11 billion addressable market. And after NSCLC, it has phase 3 data due in 2023 for ovarian cancer as well as for NSCLC that has spread to the brain.With a huge new potential market and additional phase 3 data coming down the line, a market cap of just $8.8 billion, and a drop of over 60% from its all-time highs last summer, Novocure looks ready to fly again.
